Archive for March 31st, 2011

It looks as if the stress test results this afternoon will focus on the mortgage loan books of the four institutions being examined. Here is a note setting out the facts and estimates of our residential property. You might also be interested in a comparison between two distressed property markets: Ireland and the US state of Nevada – apparently BlackRock has chosen Nevada as a key comparator when estimating mortgage losses.

(1) Number of dwellings: 1,980,000

(2) Number of households: 1,630,000

(3) Vacant property units (including holiday/second homes): 350,000

(4) Vacant property units on “ghost estates” : 33,000

(5) Number of “ghost estates” : 2,800

(6) Overhang of supply of property units : 120-170,000

(7) Property units constructed in 2010 : 7,500

(8) Average property price (peak Feb 2007) : €313,998

(9) Average property price (today): €191,776

(10) Official drop from peak: 38.9%

(11) Central Bank stress test baseline drop from peak: 55%

(12) Central Bank stress test adverse drop from peak: 59%

(13) Other notable forecast/projected drop from peak: 80%

(14) Number of mortgages:  786,164 (comprising approximately 407,000 trackers, 113,000 fixed and 266,000 standard variable rate)

(15) Amount outstanding on mortgages: €99.08bn in February 2011 (down from €109.98bn in February 2010)

(16) Mortgages advanced in 2010: 27,666 with a value of €5.7bn

(17) Mortgages advanced in 2006 (peak): 203,953 with a value of €67.6bn

(18) Number of mortgages 90 days or more in arrears: 44,508 (compared to 28,603 at end of 2009)

(19) Repossessions : 374 (in 2010)

(20) Negative equity affecting number of households: 416,000

(21) Unemployment rate : 14.7% (approximately 300,000 from a workforce of 2.1m – in addition, approximately 150,000 are in receipt of work related benefits which makes our Live Register approximately 450,000)

(22) Official GDP outlook in 2011 : + 1.75%

(23) Population: 4,470,200

(24) Mortgage arrears policy: There is a code agreed between the Central Bank of Ireland and mortgage lenders which can forestall repossessions for several years.

(25) Bankruptcy regime: One of the harshest in the world where bankruptcy can last 12 years plus. Is due to be reformed as part of the IMF/EU bailout. The UK bankruptcy rate is 350 times that of Ireland, the US bankruptcy rate is over 1,000 times that of Ireland.

Sources (1) (2) (3) (6) DKM, NIRSA and UCD studies 2009/2010, an “overhang” is said to be the amount of vacant property above the average long-term vacancy level (4) (5) Department of Environment Heritage and Local Government review of incomplete estates October 2010 (7) Estimate by DKM Consultants in June 2010, note that official figures show completions of 14,000 by reference to connection to utilities which may suffer from time delays, DKM estimated real construction (8) (9) (10) Permanent TSB/ESRI house price series national prices. NAMA recently said that prices had dropped by 50% from peak at November 2009 (11) (12) Central Bank of Ireland Stress Test macroeconomic assumptions (13) Professor Morgan Kelly January 2009 (15) Central Bank of Ireland Loans to Irish Household Purpose and Maturity February 2011 (16) (17) Irish Banking Federation publication for Q4, 2010 (14) (18) (19) Central Bank of Ireland arrears/repossession publication for period ending 31 December, 2010 and partially excludes restructured mortgages and mortgages in receipt of social assistance. (20) The Economic Social Research Institute April 2010 projected that 53% of mortgage holders would be in negative equity of prices dropped 50% from peak. The figure shown is 53% of outstanding mortgages and assumes that the present drop is 50% (21) CSO unemployment estimate for March 2011 will equate to about 300,000 people from a workforce of 2,122,000 (22) Department of Finance Information Note on the Economic and Budgetary Outlook in November 2010, the official outlook for 2010 was a 0.3% increase in GDP, figures released last week showed that it was -1.0% (23) CSO estimate at April 2010 (24) Financial Regulator code (25) Various shown here


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Today will be a momentous day in Ireland’s economic history. In addition to the stress tests, we could theoretically get the Nyberg report into our disastrous bank guarantee and NAMA’s full year accounts for 2010 are due to be presented to the Department of Finance  – I understand they have already arrived on Minister Noonan’s desk who might decide to publish them immediately. These publications would be side shows however and this entry is to track the main event, the publication of our stress tests, during the day. The central event is likely to take place at the Central Bank of Ireland at 4.30pm with the formal release of the stress test results, but the dramatic suspension of trading in AIB and Bank of Ireland shares last night seems to indicate that this day will not be as choreographed as some might hope, and this is Ireland where leaking is as common as rain. Here we go…

Firstly yesterday evening, Irish Life and Permanent had a low-key release of its annual report for 2010. Its loss for the year of €128m was down from the €313m loss reported in 2009 but there are those that claim that ILP has its head stuck in the sand ignoring the mortgage default storm that has been brewing for four years. The report may become the butt of many jokes if, as expected, it is confirmed today that the bancassurer needs €3bn to continue to operate.

Up to 9am

(1) Anglo Irish Bank publishes its annual report with accompanying press statement. With an annual loss of €17.7bn (USD $ 25.1bn at this morning’s exchange rate of €1=USD $1.4181), it places Anglo at number 13 of global corporate losses in an informal list compiled on Wiki. Anglo has already received €29.3bn of support via cash from our pension reserve and promissory notes. It is not clear if Anglo will need further injections and the annual report seems to ignore the Fine Gael commitment to wind down both Anglo and fellow-zombie, Irish Nationwide Building Society, in 2011. There is, however, reference to a merger between the two in the first half of 2011.

(2) The Independent is reporting that the additional bailout will be €25bn (€15bn for AIB, €5bn for Bank of Ireland, €3bn for Irish Life and Permanent and “more than” €1bn for EBS). It claims EBS will be merged with AIB.

(3) Our friends from the IMF, ECB and EU are in Dublin today. After all they have collectively advanced us €14bn+ of €67.5bn external bailout – remember we’re contributing €17.5bn from our own national reserves to bring the overall total to €85n – and in the ECB’s case we had €117bn of its funds propping up our banks at the end of February 2011. So I’d guess these creditors might be a little nervous as the new coalition plans its next moves. Ideally the creditors would like us to comply with the bailout agreement. (CORRECTION 2nd April, 2011. It seems the reporting of the arrival of our creditors was not accurate, in any event they are now reported to visit for 10 days commencing 5th April, 2011)

(4) The Irish Times speculates that Minister for Finance, Michael Noonan may attempt to merge ILP into Bank of Ireland. The newspaper also claims that “EBS is expected to require about €1 billion” and that the banks in general will need a “further €18 billion to €23 billion

This morning

Meeting of the newly formed Government Economic Taskforce (Taoiseach Enda Kenny, Tanaiste Eamon Gilmore, Minister for Finance, Michael Noonan and Minister for Public Expenditure and Reform, Brendan Howlin)

10.13am. The BBC is reporting the stress tests “are expected to show the banks need an extra 30bn euros

10.22am. RTE is reporting “numbers of between €18bn to €25bn” though it is unclear if that is RTE’s estimation or Mike Aynsley, the CEO of Anglo (Anglo by the way, alongside INBS, is not subject to these stress tests). Perhaps stating the obvious RTE report “one EU source told RTÉ News that if there was to be any burden sharing by bondholders it would have to be voluntary, and would require the consent of the so-called troika of the ECB, the European Commission and the IMF”

1pm. Well this is disappointing. The morning is gone and there are no new matters to report. It is interesting that the share prices of banks whose share trading is not suspended but which have substantial exposure to Irish property – mainly RBS (Ulster Bank is the local unit is up 0.3%), Lloyds (Bank of Scotland Ireland and Halifax were the local units before being closed last year with substantial legacy lending, up 0.5%), Belgium’s KBC (down 3.8%), Denmark’s Danske (National Irish Bank is the local unit, down 0.5%) and Holland’s Rabobank (ACC Bank is the local unit, the bank is private) – show a mixed picture this morning.

1.30pm Most of the bad news contained in the Anglo report and accounts published this morning was already anticipated following the release of unaudited year-end information earlier this year but it seems that Anglo CEO Mike Aynsley cost us more than €1m in 2010, being remuneration, pension, “other benefits” and expenses (most of the €46k referred to in the note below). The former government’s commitment to a €500k salary cap looks cynical in this context.

(Click to enlarge)

2.30pm For those advocating a burning of bondholders, you might get some comfort from comments today by retiring ECB board member, Axel Weber who is reported by Reuters to have said “that it was a big mistake for governments to make taxpayers liable for all bank risks” Also it understood that Minister for Finance, Michael Noonan’s presentation to the Dail later today (probably around 5pm but that it to be confirmed) will, according to government sources reported by the Irish Times, include a “watershed” argument for an EU-wide solution to pass losses onto bondholders.

3pm. It is difficult to tell from the performance of the euro on foreign exchange markets, how markets are anticipating the results of the stress tests. The euro has been up nearly a cent against the dollar as Eurostat released inflation information for March 2011 showing Euro-area inflation at 2.6% which virtually assures an increase in interest rates by the ECB in April, the present main rate being 1%. Curiously interest rate assumptions were missing from the macroeconomic data released by the CBI on 16th March, 2011 in the context of these stress tests.

4pm. Just 30 minutes to go before the main event starts with Central Bank governor, Professor Patrick Honohan presenting the results of the stress tests (technically referred to as the Prudential Capital Assessment Review – PCAR and Prudential Liquidity Assessment Review – PLAR). Meantime this may help you with an gaining an overview of the main banks servicing the domestic Irish economy. Bank of Ireland is presently 36.5% owned by the State, AIB is technically 49.9% owned by the State but is de facto 94%-owned when it converts some Convertible Non Voting shares to ordinary shares. The State presently has no shareholding whatsoever in Irish Life and Permanent (the bancassurer whose bank is called Permanent TSB). Bank of Scotland (Ireland) withdrew from Ireland last year but it has a workout vehicle called Certus which is presently managing a €30bn legacy loanbook.

4.10pm Thanks to Lorcan Roche-Kelly and his blog cornerturned which provides details of the ministerial statement “Irish Minister for Finance, Michael Noonan will be making a statement to the Dáil from 16:45 which can be watched here. – requires windows media player, alternatively, this link is to the Flash player“. I guess that CBI governor Honohan’s presentation will be quite brief without questions and answers.

4.20pm Apparently there’s quite an army of media folks congregating on the Central Bank headquarters on Dame Street in central Dublin. With Minister for Finance, Michael Noonan scheduled to make a statement at 4.45pm to the Dail, Professor Honohan will have to be quick to avoid a clash.


The Central Bank of Ireland governor, Patrick Honohan will present the results of the stress tests, produced by BlackRock Solutions and associated matters including Barclays Capital’s work on restructuring the banking sector. There will be live video coverage via the Central Bank’s website here and the statements will be available here.

4.30pm CBI governor speech is here (PDF). Governor stresses the capital requirements are based on an adverse scenario. Press release from the CBI is here. And here it is, the results of the €20m stress test exercise. The capital requirement is €24bn and here are the projected losses. The full €20m stress test report is here.

After 4.30pm

Minister for Finance, Michael Noonan is to speak for 20 minutes in the Dail on the subject of the stress tests and banking sector restructuring

5pm Minister for Finance, Michael Noonan saying there will be two “pillar” banks – Bank of Ireland will be No 1 and AIB/EBS will be No 2 . Not clear where Irish Life and Permanent will sit, presumably with Bank of Ireland. Former Minister Lenihan, in response, says that ILP’s future is uncertain as to where it will fit. No mention at all today of €60bn medium term ECB liquidity facility.

5.30pm. The speeches in the Dail raise the concern that the ECB’s support of Irish banks has not been mentioned today. Nor has there been any reference to a €60bn medium term liquidity facility. ILP’s future is uncertain because it has not been clarified today. Additional financial needs for Anglo and INBS have not been discussed.

5.45pm.  What the domestic Irish banking sector looks like after today’s announcements (see below). Separately the Irish Times has made available the audio recording of the CBI governor’s press conference. There has been a massive cock up today in that (1) the CBI video feed failed and (2) the CBI press conference clashed with Minister Noonan’s speech in the Dail.

6pm The Irish Times has made available a transcript of Minister for Finance, Michael Noonan’s speech in the Dail. It is a little concerning that so little information was imparted and ILP’s position seems distinctly uncertain. And no mention of the ECB.

6.15pm Statements from AIB and Irish Life and Permanent – nothing yet from Bank of Ireland and EBS.

8pm Joint statement from the EU/IMF/ECB available here from the IMF website. No word on a medium term liquidity facility from the ECB but the statement concludes “The staff of the EC, ECB and IMF look forward to discussing progress with implementing the measures announced today, together with a broader range of economic issues, during the program review mission starting next week”

9pm The Department of Finance has produced a presentation on today’s announcements. Its author is John Moran who has recently moved to the Department from the CBI. It has a pretty chart of the €24bn requirements announced today.

10pm Almost as a postscript to today’s announcements, there was a routine press conference at the IMF in Washington today where the following exchange took place with the IMF’s Director of the External Relations Department, Caroline Atkinson. It seems to betoken an openness on the IMF’s part for burden-sharing but there seems to be a reluctance to publicly state that out of courtesy to the EU/ECB.  Well, it has been a bit of an anti-climax as a day and save for a €20m stress test which has produced a figure which excludes Anglo/INBS (there will be an entry tomorrow which will try to assess additional funding requirements at these two institutions based on the stress test results today) and Minister Noonan’s announcement this evening was pretty uninspiring. I leave you with the IMF news conference exchange.

CAROLINE ATKINSON (IMF): I have another question online: What is the IMF’s feeling on the stress tests in Ireland and their utility in restoring confidence? I am just going to put that off -– we are expecting announcements, as you all know, from Ireland on their stress tests later today so I don’t want to anticipate those announcements now.

QUESTION: Aside from these stress tests, does the IMF still believe that Ireland should restructure unguaranteed bank bonds?

MS. ATKINSON: That is like, have you stopped beating your wife.

QUESTION: But it has been a position that the IMF officials have taken before, so I’m wondering if it’s continuing to take that position now?

MS. ATKINSON: As you know, there will be a mission to Ireland in the first part of April so beginning very shortly, which will be our first detailed discussion with the new authorities on the program in the next review. I do not want to anticipate the discussions that will take place there

You might also be interested in these recent entries

(1) A stress test for BlackRock ® – examines the controversial company which is producing today’s stress tests.

(2) Seven reasons why the bank stress tests might be little more credible than last year’s – not only will the stress tests ignore Anglo Irish Bank and Irish Nationwide Building Society but there might be other reasons why today’s estimates of the final cost of rescuing our banking sector won’t be final

(3) What are our options once the stress tests results are published?

(4) Viva Las Vegas – a comparison between Ireland and the US state of Nevada’s housing markets, negative equity, repossessions (Nevada is reportedly one of the key comparators used by BlackRock in projecting mortgage losses)

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The Nationwide Building Society has this morning published its UK House Price data for March 2011. There is also a new quarterly report for Q1, 2011 which sets out in some detail prices by UK region. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £164,751 (compared with GBP £161,183 in February 2011 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 11.4% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of March 2011 being GBP £164,751 (or €187,503  at GBP 1 = EUR 1.1381) is 2.2% below the €191,776 which the Permanent TSB/ESRI said was the average nationally here at the end of December 2010.

With the latest release from Nationwide, UK house prices have risen by 1.2% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index has risen by 1 to 894 (because only an estimated of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK) meaning that average prices of NAMA property must increase by a weighted average of 11.8% for NAMA to breakeven on a gross basis.

The quarterly report from Nationwide shows that London and the south-East are still performing best and have risen by over 2% in the past year. Northern Ireland is in a league of its own having dropped most in the UK by 10.8% in the last year (coincidentally exactly the % drop in the Republic according to the ESRI/PTSB).

The short-term outlook for UK residential remains bumpy. Interest rates may need to rise to contain inflation that is beginning to take hold –  4% in January 2011, 4.4% in February 2011 – both on an annual basis. The UK target is 2% so the base rate which has been at 0.5% since February, 2009 may need be raised. Last Wednesday’s Budget 2011 estimated growth in GDP of 1.7% and 2.5% in 2011 and 2012 and inflation of 4-5% this year falling to 2.5% in 2012.  Net debt will be 60% of GDP this year rising to 71% in 2012. Scary for the UK but paradise compared to the 100%+ in Ireland. The UK is also struggling with a deficit that was 11% last year (compared with 12% in basket-case Ireland) but there are swingeing cuts to public services in prospect to bring the deficit down to 4% by 2014/5. London saw its largest protest marches last weekend since the 2003 protests on the eve of the Iraq war – students, the public sector and recipients of state services are not happy. What all of this means for property prices is uncertain of course but the betting is that prices will come under modest pressure and may fall this by less than 5% in 2011 – the Office for Budgetary Responsibility was saying 2.7% late last year but finances have deteriorated since then. The UK has plenty of micro-markets and the betting would be that London and the south-East will fare better than the North of England and elsewhere, Northern Ireland in particular.


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